Should I use an individual 401k instead of a self-directed IRA?

An individual 401k is a great self-directed account option, and can be used instead of an IRA for persons who are self-employed. However, if you aren't self-employed, the individual 401k may not be the best option for you. If you are self-employed and you want to maximize your contributions the individual 401k has much higher maximum contribution amounts: $54,000 annually versus $5,500 annually for an IRA. That’s nearly a 10-fold difference. And let's not forget about debt: if you are self-employed and carrying debt, you are much better off choosing an individual 401k over an IRA. Individual 401ks are exempt from UDFI tax on leveraged real estate, mentioned above.